Class Warfare and Economic Quality of Life

What is rich? What is poor? What is true actionable inequality? What is just a “not keeping up with the Joneses” comparison? Are those with higher incomes and lower incomes really living inequitable lives, or are we just letting economic class envy and resentment cloud our views?

The popular media and political narrative today is that the US has large and growing income inequality and the “rich” are to blame.

Certainly income inequity is a problem that demands attention. There is copious history of destructive political and social unrest when income inequality become large and unsustainable.

As humans, we all have a natural aversion to the signs of unfairness. In fact, the founding guiding principles of governance for the United States were based on a fair and equitable distribution of opportunity for Americans to live a good life. Yet the founders knew that there would always be rich families and poor families.

During the height of the US industrial upheaval around the turn of the 20th century, monopolies and oligarchs did develop. Those that became super rich would exploit the power of their money to kill off competition and exploit labor.

But the system worked as new anti-trust laws and new labor laws were put on the books and labor unions formed and collectively bargained. We have come a long way since the days of J.P. Morgan and John D. Rockefeller. And the definition of “rich” and “poor” has changed drastically since then.

So, we need to define “rich” in modern terms.

One definition is those families with income in the top 10%. That is a pretty common perspective. Today, the top 10% income families bring home about $150,000 per year. That is a reasonably good life, but not rich.

So, if the top 10% are not rich, maybe it is the top 5%. The top 5% of families make $190,000 per year. Again, this is a good living, but really not an income level that would qualify as being rich… especially in high cost states like California.

Lastly there is the top 1%. At this level a family would bring home $500,000 or more per year. That certainly sounds like a rich level of income. For a family to take home half a million dollars per year, they should be able to afford big houses, nice cars and fancy vacations. Thinking about this brings up a picture of “fat cats” and stirs up a sense of unfairness in comparison to the lower income earner (say the bottom 10%).

The data and the graphic represent family income within an occupation subgroup.

We can see here that the largest single occupation sub-group in one-percenter families belongs to those who listed their occupation as a manager.

Ironically one occupation that we hear so often is underpaid – elementary and secondary school teachers – is a subgroup with the largest percentage of people in this occupation living in one-percenter families.

In other studies assessing the profile of the top 1% of income earners, it was determined that they tend to work longer hours, being three times more likely than the 99 percent to work more than 50 hours a week, and are more likely to be self-employed.

Managers, teachers and harder-working self-employed people… these certainly do not sound like “fat cats” or oligarchs. In fact, what these occupations have in common is that they comprise people working on just about ALL family income levels.

Even though we can agree that the top 1%, and even the top 10%, are both doing pretty well; what about the bottom 10%… how bad-off are they in this country?

How should we define “poor” in modern times?

One perspective answering this question comes from Economist.com which reports from the data of the Organisation for Economic Co-operation and Development’s “Better Life Index”. This index tracks 24 quantitative and qualitative criteria/indicators. The graph below from the Economist uses 10 of them deemed to be representative more of the picture of economic life.

The graph demonstrates that the US, when compared to the other countries on the list, does have a slightly greater income gap between families at the top and bottom 10% of income. The graph also proves, again, that the top 10% income earners in the US are at the top in economic quality of life.

But the graph displays something we don’t readily read or hear in the media or from politicians… that the bottom 10% of income earners in the US have a better economic life than all but three other countries (Canada, Sweden and Australia); and these three only have a slight advantage. Also, we don’t read or hear that these other three countries sport similar economic quality of life gaps between the top and bottom 10%. Lastly, we don’t read or hear that the bottom 10% of US incomes are very near the OECD average of the top 10%, and greater than the top 10% compared to Italy, Israel, Russia, Portugal, Brazil, Turkey and Mexico! That’s right, the so called “poor” in the US are living a similar life of the “rich” in these other countries.

Germany is cited as a model country for the US to follow. Yet Germany ‘s economic quality of life gap between the top 10% and bottom 10% is even greater than the US. Germany’s poor are less well off than are their US counterparts… but by this data the top 10% of Germans own a lower economic quality of life than do their US counterparts. Don’t tell this to the people that want the US to model Germany as a better country!

One more point that the Economist makes… that the Better-Life Index does not look too different from classic GDP rankings. In other words, income distribution is just a product of the country’s strength or weakness at overall economic output.

Maybe it is the “economy stupid” that is both the root cause and the root opportunity for a greater economic quality of life.

See the following:

This graph comes from the most recent Economic Policy Institute’s “State of Working America” study. It demonstrates that wages are generally pro-cyclical, going up in a boom when unemployment falls, and down in a recession.

The point here is that a growing economy increases wages and should have the net effect of increasing overall wages and helping many people have a better economic life.

For example, just recently Walmart said it would boost wages for its U.S. employees to at least $9 an hour this year, and to $10 an hour by Feb. 1, 2016. The reason?… growing competition for a tighter supply of available employees as the economy has heated up.

When the economy grows, it absolutely lifts all boats. But when the economy grows, it also increases wages at all income levels, and will likely widen the income gap.

The obvious question being raised is does the US income gap really matter in modern time if the people of the US have a good economic life… especially in comparison to the rest of the world?

When the “rich” are primarily just other workers and not oligarchs, does it make sense to keep directing class anger at the rich because they make more money?… especially considering that the gaps are not significantly greater than other industrialized countries we tend to laud.

Certainly there are poor people in the US, and income inequality is something we should focus on. Most people agree with this.

In a 2012 article in the New York Times, “Among the Wealthiest 1 Percent, Many Variations”, almost all of the people interviewed in the article, whether conservatives or liberal or in between, agreed that the wealthy could and should shoulder more of the country’s financial burden, and almost all said they viewed the current system as unfair. Where these people differed is howto define the problem and how to solve the problem.

Politics is a blood sport, and class warfare is an age-old strategy that has proven to pay dividends to those exploiting it for power. But if both rich and poor alike agree that income inequity is a problem that we should solve, how is simply complaining about the “rich” helpful?

Should taxes be raised? Should we move to a flat tax? Will raising the minimum wage help or hurt? Should we invest more into schools and economic development? Should we reduce the size and spending of government on non-essential activities so we have more resources to help lift up the poor to a better economic life? Should we focus on economic policy to grow the economy? Should we cut some social services to encourage more people to want to work?

These are just some of a myriad of questions we should be discussing to try and reach agreement for a plan to help everyone in this country achieve a good economic life. The media-standard rich-versus-poor narrative is not helpful in the least unless your only goal is to exploit class warfare for political power. But that comes at a great cost to everyone; both rich and poor.

36 thoughts on “Class Warfare and Economic Quality of Life”

“Lastly, we don’t read or hear that the bottom 10% of US incomes are very near the OECD average of the top 10%, and greater than the top 10%compared to Italy, Israel, Russia, Portugal, Brazil, Turkey and Mexico! That’s right, the so called “poor” in the US are living a similar life of the “rich” in these other countries.”

They are not so called poor. They’re truly low income. I challenge you to live in Davis for two weeks on minimum wage. Find an apartment, pay utilities, buy your food without help of any social service program. What is your solution to the astronomical cost of rent in Davis? Go live in West Sac or Natomas or Woodland?

If I wanted to live in Aspen CO or Hillsborough CA and I couldn’t afford it should I demand that they make it affordable for me so I can move there?

Comparing Davis to uber-rich communities and saying if someone can’t afford to live here they should just move on seems to be an attitude typical of a landed gentry who has already gotten theirs.

I thought the whole idea was to make Davis affordable for less advantaged folks to live here – young families (so we don’t have to shutter our schools), post-graduate university students (to jump start the economic growth the City is craving), and diversified ethnic backgrounds (for the cultural vibrancy it brings). You don’t get any of that in Aspen or Hillsborough and I don’t believe the majority of Davisites want us to live in such economically- and culturally-closed communities.

I don’t believe the majority of Davisites want us to live in such economically- and culturally-closed communities.

I believe this statement is true in an intellectual sense, yet the majority of Davisites continue to support the policies that have created the current unsustainable and unaffordable economic situation in town.

Our policies are turning Davis into an enclave for the ‘haves’ while at the same time ‘we wring our hands’ (while doing nothing) about our concerns for the ‘have nots.’ We advocate for slow or no growth (some even negative growth) without accepting any culpability for the impact those policies have on our economic situation and that of our neighbors. Our solution to this disconnect is to turn to ‘band-aid and feel-good’ projects like our failed affordable housing efforts, and increase the vapid ‘we care’ commentary that is frequently posted in the comments section here and elsewhere.

If we truly want an economically and culturally diverse community, then we need to provide an opportunity for economically and culturally diverse people to come and live here. We need to create jobs and provide affordable market-rate housing. If we are not going to do those things, then we should be honest and admit that we have chosen to become an economically and culturally closed community.

Yes, go live in Sest Sac, Natomas or Woodland. Many people make the decision to buy a smaller home in Davis instead of a larger home in one of the above mentioned cities. The same goes for rentals. The cost of home ownership and rental properties is simply higher in this town for a myriad of reasons.

What is your solution to the astronomical cost of rent in Davis? Go live in West Sac or Natomas or Woodland?

I would not say that the rents here are “astronomical”. If you take the time to really look at the situation, rents in Davis are only 10 to 15 more than surrounding communities. I hardly see that as “astronomical”.

Living in Woodland, Dixon, West Sac., or Natomas is a very realistic alternative. In fact, I know a lot of people who work or recreate in Davis that live in these communities. In general, they are very happy with their living arrangements.

Simply complaining is not helpful. However, correctly attributing the problem to those who have the ability to make a change might be useful. It is the “rich” who hold the power, and thus have the ability to affect change in our current society. Your citing of Walmart and their strategy is an excellent example of this. Your wrote:

“just recently Walmart said it would boost wages for its U.S. employees to at least $9 an hour this year, and to $10 an hour by Feb. 1, 2016. The reason?… growing competition for a tighter supply of available employees as the economy has heated up.”

What this tells me is that Walmart had the ability to pay its workers more all along, but chose not to simply because they did not have to. At one point, Walmart was encouraging its employees to donate to those who made less thus encouraging their workers to be “charitable” while they themselves were not even willing to pay their workers a living wage and were de facto admitting it. To me, this is a clear example of worker exploitation which could only be remedied by the “rich”, namely the owners of Walmart. So who should we hold responsible except Walmart’s owners for their business model ?

To me, this is a clear example of worker exploitation which could only be remedied by the “rich”, namely the owners of Walmart. So who should we hold responsible except Walmart’s owners for their business model ?

Walmart is a publicly owned company that trades on the New York Stock Exchange. The “owners” are the stockholders. Members of the Walton family still have a significant number of shares, but they are nowhere near the sole “owners”. There are many institutional owners which means mutual funds. The ownership of Walmart is widely dispersed and many people have Walmart shares in their retirement and saving accounts. I suspect that many Vanguard readers are partial owners of Walmart through their mutual fund holdings.

We are surrounded by Walmarts in Woodland, Dixon, and West Sacramento and I have shopped at all three of these stores. I have found that the employees at all of these stores are happy with their employer and the opportunities for advancement that Walmart provides. I have tlaked with many Walmart employees and I have never met a Walmart employee that felt that they were “Exploited”. If an employee did feel “exploited”, they can go work somewhere else.

Excellent response TopCat. Almost everyone who’s invested in the stock market through their 401k, IRA or other means owns a piece of Walmart one way or another. Do they all consider themselves rich? I think not, they’re just hoping to get a fair return on their investment.

There are many middle class folks (cops, teachers, food servers, Target employees, vet assistants, etc.) who provide a service to the folks who are fortunate enough to own a home in Davis. Many of the fortunate ones got help from their parents to get their down payment. Many inherited money. Oftentimes they are the ones who act the most entitled, like they somehow deserve their good fortune because their parents worked their butts off. They are often the ones that want to keep the middle class in Natomas, West Sac and Woodland. Because they were given their financial fortune and never really had to earn it. Yet someone has to teach their kids and serve them dinner, and clean their toilets. I guess they like having people in town to provide them services, but prefer they leave town at the end of the day? Whatever.

Many of the fortunate ones got help from their parents to get their down payment. Many inherited money. Oftentimes they are the ones who act the most entitled, like they somehow deserve their good fortune because their parents worked their butts off. They are often the ones that want to keep the middle class in Natomas, West Sac and Woodland. Because they were given their financial fortune and never really had to earn it.

My experience is that I started out my working life with nothing and worked hard, saved my money, and made good life decisions that allowed me to make a down payment on a house in Davis. Most of my neighbors are people that worked all their lives to afford the lifestyle they now enjoy. I do not see Davis as a place with a lot of spoiled brats living off of inherited money.

I was a blue collar union worker, my wife is a pre-school teacher. We never received any inheritance or any silver spoon. We worked hard and through a mortgage we’re buying out own home in Davis. I mow my own lawns, we make our own dinners and clean our own toilets. So your view of how us Davisite homeowners is very wrong and one-sided. Whatever.

“…we don’t read or hear that the bottom 10% of US incomes are very near the OECD average of the top 10%, and greater than the top 10% compared to Italy, Israel, Russia, Portugal, Brazil, Turkey and Mexico! That’s right, the so called “poor” in the US are living a similar life of the “rich” in these other countries”

That is an erroneous interpretation of what the graph actually showed. The graph does not simply display “income” as the author implies. Rather it displays the “Better-Life Index” which is a completely artificial construct based only partly on income. A footnote on the graph notes that the “Better-Life Index” is “Based on 10 normalised indicators” and furthers notes that the displayed “Socioeconomic Status of the Population” is “Based on income or education” (emphasis added).

The Economist Online (http://www.economist.com/blogs/graphicdetail/2012/06/daily-chart-1) further explains that “...the OECD, a mainly rich-country think-tank, has created the “Better-Life” Index. Now in its second year, the index uses 24 variables (which include both hard data and survey data) across 11 sectors to create a measure of welfare for 34 of its member countries, plus Brazil and Russia….This year the OECD has adjusted the index for equality to give an estimate for the top and bottom 10% of each country’s population. America scores particularly poorly on this account, with the bottom 10% having an index score some 25% below that of the top 10%.”

First, please pay attention to the fact that the graph is from the Econmist. This is not any right-leaning news source and it is generally economic-focused.

Second, the point was made that there are 10 criteria used out of the 24 used by the OECD to assess the level of an economic good life. It is disengenuous to just consider the earnings from working because of available social services.

Third, pay attention to the fact that the comparison is relative to these other countries. You can debate the criteria, but then you would have to do it for all countries in the comparison.

Fourth, someone mentioned wealth as not being included. This is also misleading because wealth does not do a damn thing for a family’s economic qualifty of life until there are earnings derived from the wealth. And the data includes the earnings.

wealth does not do a damn thing for a family’s economic qualifty of life until there are earnings derived from the wealth.

Imagine that water were wealth. (In California, it’s not a bad analogy.) Two men are standing next to the water tanks that hold their respective wealth, and each tank has a valve beneath which is positioned a drinking cup. The man on the left has a 5-gallon tank, the man on the right a 10,000-gallon tank. Both are full, and the valve on each is opened just enough to be dribbling into the cup at the same rate. The man on the right points to the two streams of water and says, “See — we’re equal!”

I get your point Jim, but your analogy is much too oversimplified. Most of the wealth you are talkoing about is real estate and 401ks. Interestingly enough public sector pension committments are not included in wealth calculations. But I will do a piece on this topic in a later VG piece.

Mark West: “Our policies are turning Davis into an enclave for the ‘haves’ while at the same time ‘we wring our hands’ (while doing nothing) about our concerns for the ‘have nots.’ We advocate for slow or no growth (some even negative growth) without accepting any culpability for the impact those policies have on our economic situation and that of our neighbors. Our solution to this disconnect is to turn to ‘band-aid and feel-good’ projects like our failed affordable housing efforts, and increase the vapid ‘we care’ commentary that is frequently posted in the comments section here and elsewhere.If we truly want an economically and culturally diverse community, then we need to provide an opportunity for economically and culturally diverse people to come and live here. We need to create jobs and provide affordable market-rate housing. If we are not going to do those things, then we should be honest and admit that we have chosen to become an economically and culturally closed community.”

I thought your comments bore repeating, because they are spot on! Many Davisites are happy to complain about income inequality, but at the same time are rabid anti-growthers. These individuals cannot have it both ways. If one is truly in favor of income equality, then one needs to invite more responsible and reasonable development into Davis, to provide jobs and homes for employees.

How many people do you know that can afford to send their kids to college and beyond? How many work or own a company and want their kids to be successful by greasing the skids to get their kid in over someone more talented?

the people needed to clean up after these kids are usually lower paid staff who bear all the blame for the missteps of the kids. I blame HR staff who seem to know nothing about talent or experience when they read a resume. If interviews were held like the Voice, they would interview all applicants behind a screen to there would be no bias. And it would still be corrupted. Values are relative. For their relatives.

Rather ironic that few liberals want to address that the policies of Barack Obama have profoundly exacerbated the income increase for the top 1%. The figures are something like this. Under Clinton, 45% of the increase in income went to the top 1%; under Bush Jr., 65%; and under Obama, 92%.

“Loaning” (giving) free money to Wall Street has to be one of the ways he achieved this. Was it by design, or foggy logic?

“Loaning” (giving) free money to Wall Street has to be one of the ways he achieved this. Was it by design, or foggy logic?

It was both, and both were put together by the Bush cabinet and appointees. Henry Paulson was the architect who convinced Bush — and scared pretty much everyone else in the world — that if he didn’t lavish his friends on Wall Street with $700B the world would end. Tim Geithner carried out the program under Obama, with Neel Kashkari (a Bush holdover) being one of the chief implementers who made sure that the program worked well for the banks, at the expense of the taxpayers.

There are those who maintain that, flawed as it was, TARP was necessary to prevent a collapse of the financial system. I don’t buy it, but there was enough uncertainty at the time that no one could say for sure what would happen if it hadn’t been allowed to go forward, and it was a done deal by time Obama got into office anyway. You can’t blame Obama for TARP and keep a straight face.

Interesting observations about TARP. I would agree that TARP was underway by the time Obama came to office. I’m not sure if I agree that TARP was not necessary. I’m just not certain in my own mind. I’ve read enough about what goes on in Wall Street to be extremely fed up with how the system works and the all too symbiotic relationship between our legislators/bank regulators and the very financial institutions they are supposed to oversee. But I am not convinced allowing financial institutions to fail was the answer. I am more troubled about how the gov’t went about deciding which financial institutions would be helped and which would be left to twist in the wind. The entire episode was disgusting.

I highly recommend the Bailout, by Neil Barofsky. Mr. Barofsky was the Special Inspector General in charge of TARP oversight appointed by Bush. He describes in detail how the public was sold on one vision of TARP while Paulson and Geithner, with Kashkari’s help, steadfastly made sure that the well-connected banks were not just protected but enriched, while the “consumer-friendly” aspects of the program were given only token funding. It’s a disgusting look into what some people are willing to do with almost a trillion dollars of taxpayer money.

Reading your posts, I’m not sure you have a real good sense for what liberals think. Nor do I think you differentiate between the competing views of people on the left. There are really two different lines of thinking. One is a more mainstream, business friendly approach. Obama probably falls in there. Then there is a more activist, progressive wing. The progressive wing has always been very critical of Obama’s Wall Street ties and his placement of Wall Street people in his cabinet. The other conflating factor of this is the impact of the economy on where economic growth happens and some of that has nothing to do with policy, it is simply an artifact of economic recovery. I’m not a huge fan of Obama on this front, but I do think people tend to underestimate how bad things were in late 2008 and continued for several years.

Prior to CRA, Freddie Mac and Fannie Mae and the Fed deciding to manipulate lending through cutting rates to way below what they should be… lending was conservative. The collapse of the financial and real estate markets was the bubble of unsustainable liberal lending that these things caused. Government prior to Obama’s era were certainly culpable. But the issue here is the failure of Obama and the Democrat legislature to recognize the impact of the correction and to implement the correct policies to support a more effective recovery. The economic policy we needed was everything needed to grow the economy and jobs. The one we got was overwhelmed by Democrat pursuits of social and environmental policy advances that had exactly the converse effect to the economy. Under Obama, it has become much more costly and diffiuclt to start and grow business. And this has helped those businesses that already exist as they lack the upstart competition. And this combined with the advance of the global economy explains the consentration of company wealth for a shrinking population of business owners and operators.

It is no surprise that income inequality has expanded under Obama. He has done a few things right in respect to economic policy to help in the recovery, but those things have been overwelmed by all the wrong things he has done.

Jeff, I would argue that the unholy alliance between financial institutions and the gov’t that is supposed to be regulating them is what caused the Bush and Obama administrations and U.S. Congressman to look the other way at what was going on in the mortgage lending sector, then chose to bail out only “favored” financial institutions. Certain financial institutions survived because they had more of a “connection” to the gov’t than others. (An excellent book on the subject, which I highly recommend, is House of Cards by William D. C0han.) And of course Congressman Dodd and Frank, both Democrats, played a huge part in the mess, by pushing financial institutions to lend too much to low income folks who could not afford it. Former Fed Chairman Alan Greenspan was another player in the mortgage meltdown.

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